Live 30 days on a budget – I dare you!
If I had to name just two personal finance techniques that have literally changed by financial life around they would be: Budgeting and the Debt Snowball. Budgeting because it’s allowed me to control my money rather than my money controlling me. The debt snowball because for years I struggled to try and get caught up my credit card debt but with little to no progress. Using the debt snowball I’ve paid off half of my debt in just 2 years and am on track to have it all paid off in another 1 -2 years (excluding our mortgage).
The concept of budgeting wasn’t new to me when I had my financial epiphany, but knowing how to budget was a concept I just couldn’t seem to grasp. I cannot even begin to tell you how many sheets of paper I wasted trying to create and live on a budget. I even tried using the limited budgeting capabilities of Quicken, no luck.
We would start out great, with budget categories for our spending. We would enter each transaction and associate it with a budget category. At first I would do this daily, then every couple of days, then weekly, and then as the transaction volume piled up, not at all. I would also get frustrated by the fact that I could never get the category amounts correct. I always seemed to miss something and always under allocated the category amount. Not to mention all of the unplanned expenses that kept coming up that would completely blow the budget.
After a month or two of not being able to follow the budget 100%, I’d give up. To be very honest, I never really liked the whole budgeting concept either. I didn’t like feeling like I couldn’t do what I wanted with my money. After all, I worked hard for that money. I should be able to spend it how I want. I deserved it right? WRONG.
Common budgeting mistakes
Here are just a few of the most common budgeting mistakes I’ve come across since I’ve been writing here on Gather Little by Little:
- Trying to track your spending before you create a budget
- Trying to be perfect
- Not involving your spouse in the budgeting process
- Not using a zero based budget
- Trying to be too detailed
- Expecting the budget to fix your problems – A budget is just a tool, it won’t fix all of the underlying problems that cause you money problems.
Track your spending before budgeting
Most all personal finance experts say that you should track your spending for 30 days before you create a budget. What they mean is that you should write down each and every expense you make for 30 days. Doing so will not only open your eyes to where you money goes, but it will serve as a solid foundation for building your budget.
Why wait 30 days? Spend an hour or so making your initial budget and begin tracking your spending using your budget. This has the benefit of not only tracking each and every expense, but also gets you started budgeting right away. “He who hesitates loses” right?
Rather than wait, go ahead and make a first attempt at a budget. Do so with the understanding that it won’t be perfect. Heck, chances are it may be completely wrong. A budget is is never perfect.
The perfect budget
The perfect budget is a myth. Understand one thing and accept it before you even try to start a budget: Your budget will never be perfect. Say it out loud with me: “My budget will never be perfect, and that’s okay.” If you’re in a public place and everyone is now looking at you, just smile and tell them you’re reading Gather Little by Little dot com.
This concept seems easy right? Well, for some of you it will be. For people like me who struggle to do anything unless it’s 100% correct this was an incredibly hard concept to grasp. I wasn’t okay with my budget not being 100%. I didn’t like having to make adjustments to the categories and overspending. But I soon realized that budgeting is an iterative process. Each budget you make and the mistakes you make with it, serve as input into your next budget to make it more accurate. 6-12 budgets later, you’re budget should be about as close to perfect as it’s going to get.
When you get frustrated, remind yourself of this: A budget that is only 10% accurate is 10% more accurate than no budget at all. Always remember, personal finance is all about direction, not perfection. Personal finance is a journey, not just one hurdle you can jump, receive a trophy and move on. Trust me; there are many more hurdles after the first one.
Not involving your spouse
One of my key mistakes early on was not involving my wife in our personal finances. Early in our marriage, I took on the responsibly of managing our money. This included bills, retirement, savings and investing. I just disliked it less than my wife. Looking back, I have no idea why we felt the need to have just one of us do it.
If you’re married and your spouse is not involved in assisting with managing your personal finances, you’re doomed for failure. How many times have you heard the story about someone’s spouse going out and spending money, only to come home and get into a fight due to that spending? Why does this happen? Generally because the spouse that did the spending didn’t understand your current financial situation.
Make sure your spouse understands your financial situation. Involve them in the budgeting process. Do your finances together.
Not using a zero based budget
This was a big problem with my early budgets. I’d list out our income, then our expenses and subtract the difference. Generally for us, there was an excess of money. Whoo-hoo! Let’s go eat out, or buy something! Seriously, that is exactly what we would do. We would spend that excess only to find out a few days or weeks later that our budget categories were way off and we didn’t have the money we thought we had. I know: stupid. I agree. We lived in the land of stupid for a long time.
What I later learned from Dave Ramsey is that a zero based budget is far more effective. A zero based budget is a budget where each and every incoming dollar gets “a home” meaning a budget category. Your budget is complete when your incoming minus your expense categories is zero. Each and every dollar you receive is allocated to an expense category. Had we allocated that extra “whoo-hoo” money to savings instead of blowing it, we wouldn’t’ be in the credit card debt we’re in now.
Trying to be too detailed
30+ years later in life, I’ve finally accepted that simplicity makes life far less stressful. My early failed budgets were far too complex. I had way too budget categories. To this day, I am still guilty of doing that, and have to perform a budget clean-up every now and then to “re-simplify” our budget.
The more complex your budget is, the longer it will take you to update it. The longer it takes you to update it, the more likely it becomes that you won’t. Keep you budget simple and easy to update and manage. After all, who wants to spend all of their time updating a budget? Can you say boring!
Expecting a budget to fix your problems
Breaking news: A budget will NOT fix your financial problems.
Far too many people expect a budget to fix all of their financial problems, it won’t. A budget is just a tool. The funny thing is, not only will a budget not fix your financial problems, it will most likely make you aware of a few more.
A budget does not: fix your need to buy things you don’t need, resolve your need to use credit cards to pay for things you feel you need to have right now, begin saving money for you, begin paying off your debt, diversify in your investments…Well you get the idea.
A budget will help you meet your goals and allow you to control your money, but only after you’ve fixed you.
High School ROTC
Bear with me and let me share a quick story, I promise this will relate to budgeting…
While at my oldest son’s high school orientation last month, a couple of students from the ROTC program spoke to the audience of students and parents. This kid impressed me. He joined ROTC on a dare from some friends during high school orientation thinking “I’ll wear the uniform, make an A, no problem.” At the time he was only interested in skate boarding and hanging out with friends.
Four years later, he’s the top student in his ROTC program and one of the senior leaders. He’s received a full scholarship to the United States Air Force academy. The ROTC leader for the school said “Mark my words, this boy will be flying an Air Force fighter in a few years, I have no doubt in my mind.”
At the end of the kid’s talk about why he liked ROTC so much and how much it changed his life, he looked out at the audience and asked all of the future high school students who weren’t going to sign up for ROTC to raise their hands. He asked them to reconsider their decision and said “I dare you to join ROTC.” Awesome speech for a high school student. Great speech for anyone.
I dare you!
Using the ROTC student’s technique, I dare you! If you aren’t currently budgeting, I dare you to start a budget and follow it for a month. Just 30 days. If you aren’t sure exactly how to get started, read my article Create and Follow a Budget. You can use paper, the Excel budget spreadsheet I developed, or better yet You Need a Budget. Use whatever works, but commit to creating a budget, tracking it and following it for 30 days.
My bet is that it will sell you on budgeting and chances are it will have a substantial and positive impact on your personal finances. Don’t believe me? Prove me wrong by trying it and pointing out the flaws.
If you’re willing to take my dare, add a comment below saying so. Also share with everyone when you will be starting and how you’ll manage and track it (paper, excel spreadsheet, software, etc). I firmly believe in making your commitments in writing and in public to make you accountable. I’ll check in in a few weeks to see how you’re doing and then again in 30 days or so.
Take my 30-day budget challenge…I dare you!!
Photo by: TheNickster